Private Sector Key to Africa’s Infrastructure Development

Infrastructure investment is costly, long-term and characterised by internal and cross-border market regulations. Whilst governments are the leading financiers of infrastructure projects, there exists a funding gap, which the private sector need to fill.

Innovative financing methods and the development of enterprises that are suited to swift execution of projects can help meet current and future infrastructure demands. Significant inroads have already been made by African private equity firms appreciative of the potential and benefits of investing in infrastructure. However, there is still a lot of work required in this area. The Achilles heel for many firms in Africa remains inadequate capacity and lack of access to regional and international funds. This is partly due to the long-term nature of infrastructure projects, which is not typical to private equity-type of investment.

With the ever-expanding African population, which now stands at an estimated one billion people, the need for increased investment in infrastructure should be duly acknowledged. All projected growth targets for Africa will depend largely on early investment towards quality infrastructure development. The high risk of infrastructure investment in Africa coupled with the high cost of investment has often made this sector less attractive. Given this fact, there is a rising demand to cultivate customized investment solutions that are packaged for the African economic landscape.

Electricity generation continues to receive the most investment and will notably require increased investment as the continent’s increasing demand must be met in order to adequately power industry. However, increased investment into electricity alone should not be seen as the most favorable option. Wind and solar energy must begin to play a more prevalent role as the greener alternatives for a more sustainable solution for future generations.

Social infrastructure, which has often been perceived as a less attractive area of investment, should also be considered as a route to explore. Water is a vital source of our existence and yet given its nature as an element of social infrastructure, it’s value to investors still remains untapped and as such, underdeveloped. Caution must, however, be observed in the area of social infrastructure so as to ensure that investment does not result in further tax burdens that could harm the very people the development is meant to benefit.

Legislators need to facilitate in ensuring the attractiveness of infrastructure investments; through the easing of regulations and creating a value proposition that guarantees profit. Continued investment into infrastructure has proven benefits for the continent including job creation and economic growth, which in turn brings about further investment. Few sectors can boast this “developmental domino effect”.

Africa is failing to fully realize its resource potential often owing to retarded growth in infrastructure. It cannot be over emphasized how the future of business in Africa depends on improvements in this area. As a developing economic region, the continent is still not attracting as much foreign direct investment as it could due to the infrastructure deficit.

Whilst Africa’s population as a collective justifies investment into large infrastructure projects, many countries have small populations of fewer than 20 million and relatively small economies which will fail to drive and sustain investment. For such countries, customized solutions are required. There is, at present, a pressing need to raise the average spend of GDP on infrastructure particularly in Southern Africa. One way of achieving this milestone is by leveraging the strength of regional integration through SADC, ECOWAS, CEN-SAD, ECCAS and EAC. The scale of investment required for infrastructure development on the continent requires that the continent speaks with one voice. Though each country’s needs will differ somewhat, progress dictates a need for synergy.

The maintenance of infrastructure should be considered with the same importance as developing infrastructure since it aids in ensuring economic sustainability. This is an area where SMEs can participate with support from venture capital particularly in the telecoms space. The maintenance of infrastructure by implication also means the innovative transformation of infrastructure to mitigate “white elephants”. Smaller economies can opt for customized solutions such as “mobile infrastructure” for temporary use or “mixed-use” infrastructure serving more than one purpose. This will help lower investment costs and increase the overall benefit to the community.

Africa’s competitiveness in trade and internal growth require improved infrastructure. Information and communication technology offers an entrepreneurial opportunity for a continent that has already embraced technology in the telecoms space, and with positive results. How Africa’s political and business leadership perceive infrastructure investment on the continent over the next ten years will undoubtedly be the determinant factor of whether Africa truly achieves the forecasted growth, necessary for it to be globally competitive.

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